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News
14 February 2020

Opyn launches insurance platform to protect DeFi users

Opyn, previously a leverage platform that has since pivoted to insurance has launched on mainnet. By building on top of a generalized options protocol called the Convexity Protocol, Opyn has created an insurance contract for Compound deposits. It works by creating tokenized put options known as oTokens which offer the right to sell a stablecoin for a dollar in the future. The tokens themselves are priced on the open market and traded on Uniswap. In this case, users are looking to buy options on their USDC and DAI deposits on Compound to protect against anything from smart contract hacks to liquidity crises. The insurance is provided by ETH holders who want to earn the premium paid by those looking to gain insurance.

Why it matters - Dai has become an indispensable part of DeFi. This has been a good thing in that it brings trustless stability to the system, but it also compounds risk as there are countless protocols depending on it. There are many unknown risks present in a complex financial system such as Maker. While its collapse would be a devastating blow to DeFi, the availability of hedging tools such as Opyn at least offer a way to mitigate financial loss for users with large exposure. - Opyn is a two-sided marketplace, meaning for every oToken created there has to be a buyer on the other side ready to purchase that contract. As we saw with lending protocol Dharma’s pivot, it can be difficult to bootstrap liquidity in this peer-to-peer model as those looking to put their capital to work need to wait for someone to take the other side of the bet. This contrasts with the peer-to-contract model used by Compound that enables users to seamlessly withdraw and deposit funds into a pool of capital. By allowing users to interact with the aggregate of all other users, the P2C model has dominated the decentralized lending business. To avoid the fate of Dharma V1, Opyn will have to overcome this issue and ensure there is ample liquidity to make the experience similar to that of a pooled model.

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